New results boost NuQ for lung and CRC

VolitionRx 7 January 2016 Update

VolitionRx

New results boost NuQ for lung and CRC

Data publication

Healthcare equipment & services

7 January 2016

Price

US$4.2

Market cap

US$77m

Net cash ($m) at 30 September 2015

6.9

Shares in issue

18.4m

Free float

67.2%

Code

VNRX

Primary exchange

NYSE MKT

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.5

(7.7)

7.7

Rel (local)

10.9

(8.2)

8.4

52-week high/low

US$5.25

US$3.0

Business description

VolitionRx is a Belgium-based diagnostics company focused on developing blood-based cancer diagnostics based on its proprietary NuQ technology. Its lead program is in colorectal cancer, which may enter the European market in 2016.

Next events

Preliminary data from 14,000-person CRC trial

Q116

Prostate cancer data

Q116

Data from 800-person adenoma trial

H116

Analysts

Maxim Jacobs

+1 646 653 7027

Dr Nathaniel Calloway

+1 646 653 7036

VolitionRx is a research client of Edison Investment Research Limited

VolitionRx recently released data for NuQ in colorectal and lung cancer, which both exceeded results from previous trials. In colorectal cancer (CRC), the test when adjusted for age detected 91% of tumors with 90% specificity in its first completed prospective study, unlike previous retrospective studies. The company also released encouraging interim lung cancer data detecting 93% of tumors with 91% specificity using the NuQ test in combination with smoking history, which positions the test as one of the most accurate non-invasive lung cancer diagnostics.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/14

0.0

(8.4)

(0.62)

0.0

N/A

N/A

12/15e

0.0

(10.1)

(0.57)

0.0

N/A

N/A

12/16e

0.8

(14.3)

(0.78)

0.0

N/A

N/A

12/17e

2.2

(20.5)

(1.07)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Improved colorectal test results

VolitionRx recently released the results of a clinical study in which 121 patients referred to a hospital with symptoms of CRC underwent a panel of four NuQ tests. When adjusted for the age of the individual, the panel identified 21 of 23 patients with two false positives, for a sensitivity and specificity of 91% and 90% respectively. These surpass the historical sensitivity and specificity of the NuQ test of 81-84%/76-78% testing preserved samples and are comparable with results from Cologuard (92/87%).

Strong lung cancer interim results

The company released interim results of the first 73 of 240 patients undergoing NuQ blood tests for lung cancer at the Liège University Hospital in Belgium. When combined with smoking history, the test identified 27 of 29 patients with non-small cell lung cancer with two false positives. The sensitivity and specificity of 93% and 91% respectively were comparable to a previous pilot study performing a NuQ test on sputum, but surpass previous blood-based NuQ lung cancer tests (76/92%).

Stage set for a catalyst-packed 2016

The company is performing a screen of 4,700 patients for 27 types of cancer, with results expected in H216. Data from the first US trial of NuQ in prostate cancer at MD Anderson are expected in Q116, as well as three studies of CRC and colon polyps due in H116 and the first prospective trial in endometriosis due in H216. Data from a 600-person, follow-up lung cancer trial are expected in H216.

Valuation: $10.90 per basic share

We have adjusted our valuation of the company from $189m or $10.48 per share to $197m or $10.90 per basic share, primarily due to expectations of greater expense control, which is mitigated by a lower cash balance. VolitionRx had $6.9m in cash at the end of Q315 and is likely to raise capital in early 2016.

NuQ has efficacy in multiple cancers in real patients

VolitionRx has developed the blood-based cancer diagnostic test, NuQ, which detects the structural changes to cell-free nucleosomes in the blood stream that occur in response to cancer or a precancerous lesion. Nucleosomes are a combination of DNA and protein that protect DNA in the cell, as well as determining how tightly it is packed. A number of chemical changes occur to nucleosomes to control the degree of packing and, by extension, the expression of the associated genes. During some of the changes that occur during the development of cancer, these nucleosomes become modified to allow for the expression of genes that lead to runaway cancer growth, and these modifications can be detected by NuQ tests. A typical screen consists of a panel of multiple independent NuQ tests, each testing for a different nucleosome modification, the combined results of which give predictive power. Additionally, these results may be adjusted for the age and/or gender of the individual to improve the accuracy of disease prediction.

An advantage of NuQ is that it can be performed using a simple blood test and because it uses routine ELISA-based assays, it can be integrated into pre-existing blood testing panels at low cost. Initial efficacy of the test was demonstrated using databases of blood samples from CRC and control patients. However, recent clinical efforts have been focused on demonstrating this efficacy, with real patients presenting at the hospital with symptoms. Additionally, because the modifications to nucleosomes detected by NuQ occur in numerous cancers, there has been an effort to test its capacity to detect other malignancies. To this end, the company has detected CRC, non-small cell lung cancer (NSCLC) and pancreatic cancer in real patients with approximately 90% sensitivity and specificity across the board, with planned investigations in a wide array of other malignancies currently underway.

First prospective study in CRC

The company released data on a recent trial of 121 patients that were high risk or presented with symptoms of CRC at CHU Dinant Godinne – UCL Namur in Belgium. Two different testing panels were used: one testing for four different nucleosome modifications, but including an adjustment of the age of the patient; and one testing for five different modifications but without adjustments for age. Of these two panels, the four-test panel with age adjustments outperformed the five-test panel in early-stage cancer and for all stages combined.

23 patients in the study were confirmed to have CRC, of which 21 were correctly identified with the age-adjusted NuQ panel for a 91% sensitivity rate. There were two false positives for a specificity of 90%. Both of these readouts are superior to the data gathered from previous retrospective studies with 81-84% sensitivity and 76-78% specificity. There are multiple different explanations for the increase in test accuracy in the recent study. It is possible that blood samples freshly collected from patients were of higher quality and yielded stronger analytical results, but the potential for selection bias on the part of investigators cannot be ruled out. Patients in this study were preselected as individuals at high risk for CRC or presenting symptoms of CRC, and although all stages of disease were present in the study population, the distribution of CRC by stage was weighted towards later stages compared to other clinical studies. There is therefore a possibility that the increase in the accuracy of the test may result from a correlation between the physician’s assessment and the patients who perform best in the test.

Despite this, the age-adjusted NuQ panel performed similarly for all stages of disease. Other diagnostics such as the fecal immunochemical test (FIT) perform better for late-stage disease and there is some evidence, albeit with a limited number of patients, that Exact Sciences’ Cologuard performs best in early-stage disease. The age-adjusted NuQ panel also identified 67% of precancerous adenomas (polyps), consistent with previous studies, which significantly outperforms both the FIT test (24%) and Cologuard (42%).

Exhibit 1: Sensitivity of CRC tests by stage

NuQ x4, age adjusted (%)

NuQ x5 (%)

Cologuard (%)

FIT (%)

CRC, all stages

91

87

92

74

CRC Stage I

100

75

90

66

CRC Stage II

83

83

100

76

CRC Stage III

86

86

90

90

CRC Stage IV

100

100

75

75

CRC unknown stage

100

100

N/A

N/A

Dysplastic pre-cancers

67

67

42

24

Source: VolitionRx, FDA executive summary on Cologuard

The increase in sensitivity demonstrated in this study may improve the path to FDA approval, because it provides substantial differentiation from the FIT test. This issue was recently highlighted in a letter from the FDA to Epigenomics rejecting the PMA for the Epi proColon blood test. Originally in June 2014 the FDA requested compliance data comparing Epi proColon to the FIT test when rejecting its first PMA. Epi proColon only demonstrated 72% sensitivity, which is approximately the same as the FIT test, and specificity was significantly less at 81%. The FDA therefore asked the company to prove the value proposition for Epi proColon contingent on it being less objectionable than a fecal test consequently showing better compliance. The resulting compliance trial completed in August showed almost 100% compliance for Epi ProColon, but interestingly 88% compliance for the FIT test, which is much higher than historical rates. In November, 2015, the FDA reiterated its stance in a response to these data, rejecting the company’s PMA and again requesting additional information on compliance from Epigenomics.

The recent data from VolitionRx differentiate it significantly from the FIT test and there is therefore a reason to believe that it will be able to support a value proposition independent of compliance. These data are more similar to those submitted for approval of Cologuard, which did not require compliance data. However, the recent US Preventative Services Task Force (USPSTF) draft guidance regarding Cologuard highlighted the fact that it is still a fecal test like FIT, with the implied compliance limitations, and this was part of the reasoning for listing it as an alternative therapy. So, it might be in VolitionRx’s best interests to perform compliance studies to enhance its value proposition in the future, thinking past approval and towards inclusion into guidelines and payor acceptance.

Lung cancer results significantly improved

VolitionRx has an ongoing trial investigating the NuQ test for detection of lung cancer. The company recently released interim results of the first 73 of the planned 240 patients referred to Liège University Hospital in Belgium for potential pulmonary disease. The single-arm study using a panel of four NuQ blood assays adjusted for smoking history identified 27 of 29 patients with NSCLC, with two false positives (out of 22 healthy patients) for a sensitivity of 93% and specificity of 91%.

The recent results represent a marked increase in accuracy compared to a pilot study previously completed in late 2014 using a panel of two NuQ tests on both sputum and blood. Sputum testing proved more effective in this study, identifying 18 out of 21 lung cancers (85%) compared to 16 (76%) identified via blood. The increase in the specificity of the blood test is likely due to the increase of NuQ tests (from two to four) in the panel. The success of the test in blood is significant because of the increase in convenience to the patient and the doctor associated with a blood draw as opposed to sputum testing, which may require an invasive bronchoscopy to obtain a sample.

The specificity of the blood test and its capacity to identify cancer in a background of other lung diseases is critical to its commercial success, because a significant contributing factor to the morbidity of lung cancer is that it is typically detected late in the progression of the disease. The detection of lung cancer from blood may allow for the routine testing of at-risk individuals, as there is currently a lack of effective non-invasive or low-risk detection methods. The consensus target population for lung cancer screening is people aged 55 to 76 (on average) with 30 pack years of smoking. This represents a potential market in the range of nine million individuals in the US.1

CDC summary of lung cancer screening guidelines.

Historically, diagnosis of lung cancer has involved a combination of imaging and cell samples. Low-dose computed tomography (LDCT) has the highest success rate of imaging techniques for identifying cancer, but requires radiation exposure. The current NuQ lung results are very close to the sensitivity and specificity of LDCT, posing the possibility of a safer and more convenient alternative.

An alternative to LDCT is pre-screening with a chest X-ray followed up with biopsy of suspicious lesions. This procedure has one of the highest chances of detecting lung cancer, but there is significant risk associated with lung biopsy, so many doctors perform a bronchoscopy to obtain a sputum sample for cytology. However, retrospective studies have identified that sputum cytology misses approximately one-third of cancers (66% sensitivity).2

Rivera et al., (2013) Chest 143(s5) e142S-e165S.

Veracyte has developed a lung cancer diagnostic test to address this issue, Percepta, which was CLIA waived in early 2015. The test uses gene expression analysis from cells extracted during a bronchoscopy to identify cancer, and has exceptionally high sensitivity (97%), but low specificity (47%). As such, it is targeted at the 100,000 patients per year with inconclusive sputum cytology, which positions it for a different niche from NuQ.

Epigenomics has developed Epi proLung BL Reflex, a test that measures DNA methylation in bronchial aspirate to detect lung cancer. A blood-based test has also been in development, but showed very low sensitivity (62%). The recent NuQ lung cancer data significantly outperform the sensitivity of the Epi proLung (81%). Additionally, Epi proLung is based on inherently more complex genetic technology, which is more difficult and costly to implement than the already entrenched ELISA technology that is the basis for NuQ.

Exhibit 2: Relative efficacy and cost of lung cancer diagnostics

Test name

Company

Sensitivity (%)

False negative
rate (%)

Specificity (%)

False positive
rate (%)

Cost ($)

Sputum cytology

66

34

99

1

2,500

Needle biopsy

90

10

97

3

9,000

Chest X-ray

54

46

99

1

100

LDCT

89

11

93

7

300

PAULA

Genesys Biolabs

74

26

80

20

95

Lc Detect

Panacea Global

98

2

90

10

200

Percepta

Veracyte

97

3

47

53

4,875

Epi proLung BL Reflex

Epiogenomics

81

19

95

5

NuQ x2 blood

VolitionRx

76

24

92

8

40-80

NuQ x2 sputum

VolitionRx

85

15

100

0

40-80

NuQ x4 blood

VolitionRx

93

7

91

9

40-80

Source: Chest Journal, ASTRO, Cancer Journal, company Reports

Numerous readouts in 2016

VolitionRx has had a strong track record engaging institutions and initiating collaborative studies. These efforts have resulted in a substantial number of ongoing clinical trials, the majority of which will have readouts in 2016. CRC remains a significant focus of the company, with three trials ongoing in collaboration with Hvidovre Hospital in Denmark, all of which have expected readouts in H116. Among these is the first study of NuQ’s unique capacity to detect colorectal adenomas, the precancerous polyps that significantly increase the risk of developing CRC. In previous trials examining CRC, NuQ detected 67% of adenomas, which is significantly better than existing non-invasive tests. The upcoming data on adenoma may be used by the company to optimize the NuQ panel to further improve the detection of these lesions. Data are expected in this trial in H116.

Exhibit 3: Clinical catalysts in 2016

Indication

Data

Trial description

Colorectal cancer

Q116

First 2,500 samples from 14,000-person population screening study at Hvidovre Hospital complete. Will have comparison to FIT and colonoscopy.

Prostate cancer

Q116

Exploratory study at MD Anderson Cancer Center. Evaluation of NuQ for early detection of anaplastic prostate cancer vs castration-resistant prostate cancer.

Colorectal adenomas

H116

800-person study at Hvidovre Hospital. Largest study to detect precancerous adenomatous polyps.

Colorectal cancer

H116

4,800-person study at Hvidovre Hospital.

Pan-Cancer

H216

4,700-person study at Bonn University Hospital. Study screening for 27 of the most common solid and haematological cancers.

Lung cancer

H216

600-person study at Bonn University Hospital. Aim is to confirm pilot results of NuQ for early detection of lung cancer. Control groups of healthy and patients with non-cancerous lung disease.

Endometriosis

H216

500-person study at the University of Oxford. Laparoscopically confirmed endometriosis with healthy individuals.

Source: VolitionRx

Additionally, the company continues to expand and support the development of NuQ testing panels for other oncology indications. There are additional results from a second, confirmatory 600-person lung cancer study expected in H216, as well as expansions into prostate cancer, endometriosis and ovarian cancer. Early studies into CRC had the interesting, unintended consequence of identifying patients with other forms of cancer, otherwise unrelated to CRC. Currently, the exact extent of different cancers that can be detected by NuQ tests and the degree to which these test results can differentiate cancer types is unknown. To answer these questions, the company is gathering data from 4,700 people across a range of 27 different malignancies in a study at Bonn University, which should provide insight into the utility of NuQ tests for other cancer types. Data are expected for this trial in H216 and should be a significant catalyst for the company.

Valuation

We have adjusted our valuation of the company from $189m or $10.48 per share to $197m or $10.90 per basic share, primarily due to expectations of greater expense control, which is mitigated by a lower cash balance. VolitionRx had $6.9m in cash at the end of Q315 and is likely to raise capital in early 2016.

Exhibit 4: VolitionRx valuation table

Product

Main
indication

Status

Probability of
commercial
success

Launch
year

Peak sales
($m)

Patent
protection

Economics

rNPV

NuQ

Colorectal

Development

30%

2016

$404

2034

56% peak margin

$150

 

Lung

Development

30%

2018

$145

2034

61% peak margin

$33

Pancreatic

Development

30%

2018

$37

2034

58% peak margin

$7

Total

 

 

 

 

 

 

 

$190

Cash and cash equivalents (Q315) ($m)

$6.9

Total firm value ($m)

$197

Total basic shares (m)

18.1

Value per basic share ($)

$10.90

Warrants (9/2015, m)

3.3

Weighted average exercise price ($)

$2.01

Cash on exercise ($m)

$6.6

Total firm value ($m)

$203

Non-warrant options (9/2015, m)

1.6

Total number of shares

23.0

Diluted value per share ($)

$8.86

Source: Edison Investment Research, company reports

Financials

VolitionRx had $6.9m in cash and cash equivalents at the end of Q315. With a burn rate of ~$2m per quarter, the company will need to raise capital in 2016. Sales and marketing expenses are expected to increase as the company invests in European commercial operations following CE mark approval of NuQ for CRC. R&D expenses are also expected to increase as the company initiates trials with the aim of US approval. We currently forecast $9.4m in R&D in 2016 and $10.3m in 2017, which is lower than our previous forecast as the company has continued to control expenses. If VolitionRx decides to go down the self-marketing route, we calculate that it would need to raise an additional $120m before profitability in 2021. Near term, we expect it to raise $25m in 2016 and $25m in 2017 (nominally attributed to debt as per our policy).

Exhibit 5: Financial summary

$'000s

2012

2013

2014

2015e

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

55

0

15

0

836

2,245

Cost of Sales

0

0

0

0

(84)

(222)

Gross Profit

55

0

15

0

752

2,023

Research & Development

(2,843)

(2,504)

(4,044)

(6,385)

(9,385)

(10,324)

Sales, General & Administrative

(1,295)

(2,072)

(1,908)

(4,054)

(5,701)

(10,301)

EBITDA

 

 

(4,083)

(4,576)

(5,937)

(10,439)

(14,334)

(18,602)

Operating Profit (before GW and except.)

(4,083)

(4,576)

(5,937)

(10,439)

(14,334)

(18,602)

Intangible Amortisation

0

0

0

0

0

0

Other

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

Operating Profit

(4,083)

(4,576)

(5,937)

(10,439)

(14,334)

(18,602)

Net Interest

0

0

0

0

19

(1,913)

Other

(39)

840

(2,320)

525

0

0

Profit Before Tax (norm)

 

 

(4,083)

(4,576)

(8,358)

(10,099)

(14,316)

(20,514)

Profit Before Tax (FRS 3)

 

 

(4,122)

(3,736)

(8,258)

(9,914)

(14,316)

(20,514)

Tax

0

0

(0)

5

(8)

0

Deferred tax

0

0

(0)

(0)

(0)

(0)

Profit After Tax (norm)

(4,083)

(4,576)

(8,358)

(10,095)

(14,323)

(20,514)

Profit After Tax (FRS 3)

(4,122)

(3,736)

(8,258)

(9,910)

(14,323)

(20,514)

Average Number of Shares Outstanding (m)

9.4

10.8

13.5

17.7

18.4

19.2

EPS - normalised ($)

 

 

(0.44)

(0.42)

(0.62)

(0.57)

(0.78)

(1.07)

EPS - FRS 3 ($)

 

 

(0.44)

(0.34)

(0.61)

(0.56)

(0.78)

(1.07)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

1,522

1,065

1,097

1,756

1,543

1,382

Intangible Assets

1,430

1,002

809

745

745

745

Tangible Assets

91

63

289

1,011

798

637

Other

0

0

(0)

(0)

(0)

(0)

Current Assets

 

 

416

941

2,192

3,866

17,773

23,709

Stocks

0

0

0

0

4

11

Debtors

0

0

0

0

149

400

Cash

376

889

2,139

3,714

17,468

23,147

Other

39

53

53

152

152

152

Current Liabilities

 

 

(695)

(957)

(2,713)

(1,086)

(1,093)

(1,086)

Creditors

(695)

(957)

(2,713)

(1,086)

(1,093)

(1,086)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(635)

(433)

(352)

(635)

(25,635)

(50,635)

Long term borrowings

0

0

0

0

(25,000)

(50,000)

Other long term liabilities

(635)

(433)

(352)

(635)

(635)

(635)

Net Assets

 

 

607

617

224

3,902

(7,412)

(26,630)

CASH FLOW

Operating Cash Flow

 

 

(2,315)

(3,084)

(4,141)

(9,612)

(13,120)

(17,563)

Net Interest

0

0

0

0

19

(1,913)

Tax

0

0

0

0

0

(8)

Capex

(91)

(1)

(303)

(535)

(30)

(30)

Acquisitions/disposals

0

0

0

0

0

0

Financing

2,576

2,828

5,627

11,336

0

0

Dividends

0

0

0

0

0

0

Other

0

0

0

0

0

0

Net Cash Flow

171

(257)

1,183

1,189

(13,132)

(19,513)

Opening net debt/(cash)

 

 

(348)

(376)

(889)

(2,139)

(3,714)

7,532

HP finance leases initiated

0

0

0

0

0

0

Exchange rate movements

(40)

4

(44)

21

0

0

Other

-103

765

111

365

1886

191

Closing net debt/(cash)

 

 

(376)

(889)

(2,139)

(3,714)

7,532

26,853

Source: Edison Investment Research, company reports

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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